Friday, April 24, 2009

Dave Ramsey: The Stock Market Will Rebound

by Dave Ramsey

History proves we’re going to make it through this recession.

Bear markets—when stock prices decline by 20% or more over at least two consecutive months—are no fun, but they have historically set up the market to bounce back and surpass its previous highs. And it might happen sooner than you think it will. Just look at the past bear markets the stock market has overcome.

What you see below is a graph of past bear markets and how they affected the S&P 500. The graph shows, on average, how long a bear market lasted and how much the stocks improved after it ended.

As you can see, the average bear market lasted around 13 months. Even more revealing is that, on average, the S&P 500 recovered all of its value and more within one to two years after the bear market ended.

If you cashed out your investments during one of those bear markets, you would have missed out on about a 50% gain. That’s a lot of money!

So what does history teach us?
1. Don’t cash out your investments during a bear market. If you do, you may lock in the losses and miss the rebound of the stock market.

2. Never give up hope. This recession and the bear market will end. You and your investments will be stronger in the long run.

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